Like many people, I looked at the New York Times this morning and saw the eye-popping (for followers of business news, anyway) headline, “Obama Will Seek Broad Expansion of Overtime Pay.”

Oh lord, I thought, the conservatives are going to go crazy over this one.

In truth, I'm hard-pressed to think of a more aggressive way President Obama could pick a fight with Corporate America and the Republican Party. An executive order that bypasses Congress, and baits Republicans in Congress to pass legislation that curbs workers' ability to earn overtime pay? A move that pits the owners of America—private equity firms, investment funds, the 1 percent, corporate board directors—against the workers of America, who have struggled non-stop since 2008? Not the most lofty and unifying move a president could make, but if you're a Democrat playing to win in November, this is a pretty sharp knife to pull. Slick move.

For compliance officers, the headaches will be several. First we'll all need to endure more uncertainty as the inevitable legal challenge will come, presumably from the U.S. Chamber of Commerce or the Business Roundtable or some other such group. Nobody has raises the specter of litigation yet, but I have faith in the business lobby that one will be forthcoming.

Second will be even more collaboration with the HR department, as you digest whatever final rules will be published by the Labor Department's Wage & Hour Division. Worker classifications will need to be re-evaluated. Some employees might need to be re-assigned. Compensation budgets will need to be reset. Most likely, some jobs will need to be eliminated. Boards will need to be briefed. Compliance Week has written about wage-and-hour compliance before, and thanks to the president, we will again.

All that will come in due course. Right now, let's step back and look at the politics and economics of why Obama did this—which, on both counts, are fairly simple.

One of the early lessons in any corporate finance class is that share price is a function of future earnings: the more earnings your stock is likely to generate, the higher the share price will go. One example is the price to earnings ratio. Price is the numerator, earnings the denominator, so if your expected future earnings fall, your P/E ratio rises, and the stock becomes overvalued. The market responds by selling and your stock price falls. We could delve further into finance theory to elaborate, but the key point is that share price is determined by expected future earnings.

Now, as board directors wring their hands and ask, “How are we supposed to afford all these new labor costs?” the Obama Administration has its preferred answer. It wants companies to give a larger share of profit to workers and a smaller share to investors. It expects companies to report fewer earnings, because more profit generated goes to workers generating that profit than to investors owning shares.

The economics of it are simple: wages have stagnated while profits have soared, so Obama wants to divert some of that profit back to wages. Until Corporate America finds some way to revitalize wage growth on its own—which seems unlikely—this sort of regulatory push will happen more often.

The politics of it are simple, too: workers increasingly feel left behind and economically vulnerable; when that happens, they tend to vote for Democrats. That was the case in 1932, 1948, 1992, 2008, and 2012. Indeed, 2012 was a superb example of the politics and economics aligning on each side. Obama and the liberals represented workers feeling like they deserved more reward and security for the work they perform, while Mitt Romney and conservatives represented the investors feeling like they're entitled to reap the benefits of what they own.

Which side will prevail in the future? Well, as Romney learned too late, when you're willing to leave workers feeling isolated and vulnerable, they tend not to vote for you. And there are more of them out there than 47 percent. 

Topics